Agencies Issue Long-Awaited Final Rule on Private Flood Insurance Acceptance

The financial regulatory agencies on Friday released a final rule governing the acceptance of private flood insurance. The rule, which will be effective on July 1, 2019, is the long-awaited implementation of the 2012 Biggert Waters Act provision that requires federally regulated lending institutions to accept private flood insurance policies that meet certain statutory criteria. Implementation of the statutory requirements without impeding the development of a market for private flood insurance — as advocated by the American Bankers Association — was such a challenge that the banking agencies issued an initial proposal in 2013, and after reviewing the comments published a revised proposal in 2016.

As recommended by ABA, the final rule contains a “compliance aid” to facilitate lenders’ acceptance of such private policies. As strongly urged by ABA, the rule also permits lenders to accept private policies that do not meet the statutory criteria but in the judgment of the lender offer sufficient protection for a designated loan consistent with general safety and soundness principles. Finally, the final rule permits lenders to exercise discretion to accept certain plans providing flood coverage issued by “mutual aid societies” such as agreements by Amish communities to cover flood losses to members’ property.